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Teleflex Pursues Portfolio Buildup

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Recently, Teleflex Incorporated (TFX - Snapshot Report), a global leader in medical devices used in critical care and surgery, announced that the U.S. Food and Drug Administration (FDA) has granted 510(k) clearance to its line of Weck reusable obturators which complement the Weck Vista line of bladeless laparoscopic access ports. The company recently unveiled its complete Weck Access line.

This offering will enhance the company’s portfolio for laparoscopic surgical procedures under its Surgical Care segment which contributed 18% to total revenues in 2011. Weck brand helps clinicians to better manage general as well as advanced minimally invasive surgeries. It is expected that Weck reusable obturators will be preferred by clinicians as its in-built design offers unique features to enhance efficiency and will score over available access devices in the market.

In a separate story, Teleflex launched its Arrow FlexBlock continuous peripheral nerve block catheter. The company plans to begin shipping the product, which obtained the approval of the U.S. Food and Drug Administration (FDA) earlier this year, in September, 2012.

The company’s latest offering will annex its market-dominating line of Arrow StimuCath continuous peripheral nerve block catheters. Teleflex’s Arrow FlexBlock will enhance its line of Anesthesia and Airway Management products in its largest segment – Critical Care segment. This segment accounted for 66% of total revenues in 2011. The Anesthesia and Airway Management franchise contributed 22% to Critical Care revenues in 2011.

The Arrow FlexBlock along with the earlier launched Arrow SureBlock Kit and the twin acquisitions of Willemstad, Netherlands-based LMA International N.V. and LMA’s laryngeal mask supraglottic airway business from Intavent Direct Limited provides the company with an extensive anesthesia and airway management portfolio. Teleflex expects incremental revenues from the extended Anesthesia and Airway Management franchise.

Our Take

Teleflex has embarked on enhancing its Arrow brand ever since the acquisition of Arrow International in 2007. However, the failure to protect its intellectual property and lower-than expected market adoption of the new products may hinder the company’s growth trajectory.

Teleflex’ focus on profitable and consistent growth is expected to yield results as it continues to grow organically as well as inorganically. The company has closed four acquisitions year-to-date to enhance its Critical Care, Cardiac Care and Surgical Care segment. While acquisitions remain the most important part of Teleflex’s growth strategy, these recent announcements reflect its aggressive strategy of portfolio extension as it transits towards a pure-play medical technology company.

Moreover, demographic trends and barriers to entry in the industry are expected to bolster the organic growth rate at Teleflex. The recent divestiture of its OEM Orthopedic division is expected to aid the company’s strategy of new product introduction, and investment in innovative technologies.

However, Covidien , C.R. Bard (BCR - Analyst Report) and CareFusion , which operate in similar business segments, present a tough competitive landscape for Teleflex. The demand for its products is susceptible to healthcare reimbursement systems in the domestic as well as international markets.

We currently have a long-term Outperform recommendation on Teleflex. The stock carries Zacks #1 Rank, which translates into a short-term Strong Buy rating.

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